SUMITOMO CHEMICAL INDIA

Riding Japanese parent’s R&D

Mumbai-headquartered Sumitomo Chemical India, the Indian outfit of the giant Japanese multinational Sumitomo group, is primarily engaged in the manufacture and import of products for crop protection, grain, fumigation, rodent control, bio- pesticides, environmental health, professional pest control and feed additives for use in India. The company’s product range comprises conventional chemistry sourced from US-based subsidiary, Valent Biosciences LLC, a leader in producing a range of naturally occurring environmentally compatible pesticides and plant growth regulators for over 40 years. The company also produces many technical grade pesticides in its state-of-the-art manufacturing facility. It is doing very well on the financial front, with sales growing at a CAGR of 33 per cent for the last five years and profit growing at a CAGR of 93 per cent. What is more, prospects for the company going ahead are all the more promising. Consider:

• The parent company is a giant Japanese corporate conglomerate operating in chemicals, petrochemicals, pharmaceuticals, health and crop sciences, plastics, energy, functional materials and IT-related chemicals, among others. This is a research-oriented enterprise and spends 8 to 9 per cent of its sales on R&D activity every year. SCI, being its subsidiary, gets the full benefit of this research and is, as a result, able to launch proprietary products in the Indian market. The Indian company thus is riding high on the parent’s R&D activity and has succeeded in emerging as a unique player in the chemical sector. Obviously, the company concentrates more on proprietary products which fetch high margins. Little wonder then that its revenues are more tilted towards speciality products which contribute over 63 per cent of revenues, while the generic portfolio contributes the balance 37 per cent.
• SCI has made rapid strides on the financial front. During the last 12 years, revenue has shot up around 29 times– from Rs 451 crore in fiscal 2012 to Rs 3,511 crore in fiscal 2023, with operating profit skyrocketing from a negative Rs 12 crore (loss) to Rs 668 crore and the profit at net level surging to Rs 503 crore in fiscal 2023, in striking contrast to a loss of Rs 11 crore in fiscal 2012. The company’s financial position is extremely strong, with reserves at the end of March 2023 standing at Rs 4,881 crore — over three and a half times its equity capital of Rs 499 crore.

WIN-WIN MERGER

• A successful merger of Excel Crop Care, which was acquired over five years ago, has enabled the company to enhance the pace of growth. As Excel has a strong product portfolio in rice, wheat and cotton, and SCI is strong in wheat and sugarcane as well as fruits and vegetables, the company is now in a position to address end-to-end solutions for the entire domestic market. It plans to launch products with patented generic molecules in the domestic market, of which almost half are already in an advanced stage. What is more, the company may get one or two molecules under CRAMs (Contract Research and Manufacturing Services) from the parent company. All these new products should translate into a higher topline as well as bottomline going ahead.
• SCI is also chalking out a plan to enter the herbicides segment and increase revenue from plant growth regulation (PGR). These two new portfolios are estimated to provide incremental business opportunities of Rs 12,000-15,000 crore over the next five years. Further, the company plans to expand its footprint in rice and botanical insecticides.

There was noticeable selling pressure in the stock of Sumitomo in the wake of subdued performance during the second half of 2023, and the share price came down from Rs 541 to Rs 400. However, this is a short-term reaction. The company’s performance will pick up in the current year ending March 2024 and the share price will recover fast to cross the Rs 500 mark. Discerning investors should include this stock in their portfolios.

PERFORMANCE INDICATORS (Rs. in crore)

KELTRON TECH SOLUTIONS

Formidable player in digi-tech

Incorporated in 1993 as VMF Soft Tech, Hyderabad-headquartered Keltron Tech Solutions is a CMMI level 5 and ISO 9001:2015 certified global leader in digital transformation, propelling businesses into their future by transforming the way they operate. The company is known for providing cutting-edge digital transformation solutions and services in strategy, consulting, digital and technology, with its service vision of ‘infinite possibilities with technology’ and its specialized digital transformational skills across all business and technology deliverign sustainable business values to its clients. The company has a global workforce of 1,800+ employees that work together with business to drive innovation and deliver on its promises to stakeholders.

Keltron is doing well on the financial front, with sales CAGR during the last 10 years being 104 per cent and profit CAGR being 36 per cent. What is more, prospects for the company going ahead are all the more promising. Consider:

• The company’s capabilities to offer solutions across a broad spectrum of DIGINEXT technologies like Blockchain, Internet of Things, Artificial Intelligence and Data Engineering have made it a formidable player in the digital engineering space. Keltron’s unique industry- specific solutions such as KLGAME and Optima have helped it deliver value-driven outcomes for both new-age as well as asset-heavy enterprise clients. This, along with the company’s strong partnership ecosystem, has helped the firm establish itself as a leader amongst small and medium-sized providers in Zinnovi’s 2022 FR&D Zones ratings.
• Keltron’s global footprint is strengthened by offices in the US and Europe. It employs over 1,800 people catering to over 350 clients ranging from start-ups to Fortune 500 companies, spread across verticals such as BFSI, travel, e-commerce, manufacturing, logistics and healthcare. It powers 30 per cent of the $ 25 billion e-commerce market in India through its clients.

INORGANIC ROUTE

• The company has expanded its reach globally through the inorganic route. By now, it has acquired around 10 companies. In fact, the acquisitions have become a part of its strategy and have enabled the company to acquire capabilities and become a trusted digital partner of its customers.
• The company’s promoters, Niranjan Chintan and his colleagues, foresaw the rise of digital technologies ahead of the curve and invested significantly in building the requisite expertise in various technologies well before they appeared on the horizon. In a way, they were rewarded with the first-mover advantage.
• A Gartner survey carried out in 2020 had revealed that around 75 per cent of business was digital business or was preparing to become one. Expecting large opportunities with companies looking for enterprise digital transformation deals, Keltron has entered into technological partnerships with companies like Software AG, Microsoft, Azune, SAP, IBM and IBM Watson.

BOOMING GROWTH

• Needless to say, Keltron has made rapid strides on the financial front. During the last 12 years, its sales turnover has expanded rapidly from just Rs 1 crore in fiscal 2011 to Rs 883 crore in fiscal 2022, with operating profit shooting up from a negative Rs 3 crore (loss) to Rs 105 crore. Besides, it has earned a net profit of Rs 70 crore in striking contrast to a net loss of Rs 4 crore in 2011. The company’s financial position has also improved considerably, with reserves at the end of March 2023 standing at Rs 430 crore – almost nine times its equity capital of Rs 48 crore, that too after a 1:1 bonus issue in 2017.

The company’s shares are available around Rs 70, which is quite an attractive entry point for new shareholders to enter.

PERFORMANCE INDICATORS (Rs. in crore)